Inside Markets — ISM Manufacturing

Yesterday’s very strong January ISM manufacturing print may have been partially overlooked due to outsized attention on tariff developments.  If tariffs were not in focus, yesterday’s ISM manufacturing results would been used as fuel for a broad-based equity rally.  Not only did ISM manufacturing move into expansion territory for the first time in 26 months, but the share of industry (measured by GDP) with a composite reading at/below 45 moderated from 49% in December to only 8% in January.  Manufacturing ISM is one of the best forward-looking indicators available and the January print suggests US economic growth is accelerating.  A prolonged period of tariff threats could eventually weigh on corporate sentiment and tighten financial conditions but we’re not there yet.  If tariff threats are going to become a headwind, we should see it first develop in widening credit spreads, which remain at benign levels for now. Given the level of interest, we’re temporarily replacing terminal rates with credit spreads in the ‘Cross Markets’ section above.

The Philadelphia Semiconductor index (SOX) and its AI-levered constituents (NVDA, AVGO, AVGO and TSM) are rebounding this morning but remain below key technical resistance and are still vulnerable to a retest of last Monday’s lows.  A successful retest (oversold with bullish momentum divergence signals) is usually the ‘buy the dip’ opportunity.  In our view, the ‘no retest’ scenario only becomes a possibility once these indices/positions clear the levels where they broke down.  In terms of the SOX, the level to clear is 5100.